Adaptive Reuse
Are there firms heavily into office-> multi conversions?
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From my experience, it is extremely capital intensive to produce a quality multi product from a former office asset. With that being said, it can also be extremely lucrative.
The office product needs to have certain type of floor plan and an attractive basis for the investment to work.
Heavily may be an overstatement, but there are certainly firms that do it.
I almost did one once but couldn’t get comfortable with the unknown unknown element of the process. No one I spoke with (contractors, architects, etc.) could get me comfortable with the extent of risk exposure so we dropped it.
I remember reading in 2023 that Silverstein Properties in NYC planned a conversion of an office building in the Financial District to multi, but I haven't heard anything about it since. Deals like these sound good in theory but usually don't pencil out due to the capital needed and legislation/zoning requirements. However, there are firms (usually affordable housing developers) that convert historic buildings (like an abandoned high school) into multifamily. These types of deals pencil out since their costs are partially subsidized by tax credits provided by the government.
It can’t just be any office building either. Only specific office buildings have floor plates that would make any sense whatsoever for resi.
Then you have to ask does the location-based rent premium and/or basis (presumably here, otherwise why would you do it at all) justify the additional expense of a conversion over a new build?
I don’t even mean to be a Debbie downer either - we have to figure out something to do with all of the unnecessary office space - but right now office to Resi is super difficult to justify.
For real, the layout is important to consider too. Even just considering the work required to add bathrooms/plumbing to every unit on every floor- it doesn't sound reasonably feasible.
Do you think a heavier tax subsidy for developers allocating units in these conversions to affordable housing renters is the answer? I believe new construction in NYC qualifies for 421a tax abatement and whatnot if there is a portion allocated for affordable housing.
Knock it down and build something else, obviously. In places with awful zoning/tax regimes, like NYC, make sure to deal with that aspect first!
My shop has been mostly focused on this for the last two years now. We have about $750mm of office conversion deals around the country.
All deals are historic and have lots of incentives, plus the floorplates and location have to be right. I'd say maybe 1-3% of office can be converted, otherwise new federal or local incentives are needed to make it work for the remaining buildings. Many are just not doable regardless or incentives because of the floorplates.
Dude sounds like he's about to sell me an Arby's
Metroloft is the 800-pound gorilla in NYC. There are other developers doing conversions as well but more one off. Outside of NYC, most projects require major incentives because of the high cost of converting office buildings and lower rents. One of the most used incentives is the historic tax credit program. You’ll probably find what you’re looking for if you narrow down the list by developers using these credits.
How would I find the info on what developers are using tax credits?
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